South Korean media reported Sunday that Seoul and Washington have called off plans to hold a major joint naval exercise in the Yellow Sea this month.

Yonhap news agency quoted government sources as saying the exercise involving a U.S. nuclear-powered aircraft carrier has been postponed to avoid tensions on the Korean peninsula during the upcoming G20 summit in Seoul.

There was no official confirmation of the reports.

The Chinese government has fiercely opposed the deployment of the U.S. aircraft carrier George Washington in the regional waters.

The U.S. and South Korea have been holding a series of joint military exercises as a warning to North Korea after the sinking of a South Korean warship.

An international investigation concluded that the March 26 sinking of the Cheonan was caused by a torpedo launched from a North Korean ship. Pyongyang has called the report a fabrication.

This situation was further complicated when a North Korean midget submarine sank a South Korean corvette on March 26, 2010, killing 46 sailors. In the aftermath, Washington and Seoul announced a series of naval exercises to demonstrate resolve in the face of North Korean aggression while China refused to condemn the attack. It was initially reported, on June 1st, that those exercises would take place in the Yellow Sea, which separates China and South Korea, and would involve the USS George Washington, the most advanced aircraft carrier in the US Navy. However, as China repeatedly announced its “resolute opposition” to any carrier-led exercises in Yellow Sea, the military drills were repeatedly delayed. The George Washington had traversed the Yellow Sea as late as October 2009 with no protest from Beijing, but suddenly Communist Party of China mouthpieces were filled with op-eds from hawkish PLA generals warning Washington about drilling in the Yellow Sea.

Weeks passed and the standoff became a diplomatic game of chicken: would President Barack Obama send the George Washington into the Yellow Sea, or would he give Beijing a veto over US freedom of action in the Pacific?

First, Mr. Obama tried to split the difference, hosting exercises led by the George Washington in the less contentious Sea of Japan, off Korea’s eastern coast. However, the move was interpreted by allies and enemies alike as a cessation of American authority in Asia and an embarrassment to South Korea, which had gone on record insisting the George Washington would stand by its side in the Yellow Sea.

The message carried particular salience in the capitals of Southeast Asia, where tensions with China are fast on the rise. After years of an effective Chinese charm offensive, many East and Southeast Asian nations have become alienated by hardening Chinese territorial claims in the Pacific. The South China Sea, where island chains such as the Spratlys and Paracels are disputed by China and Vietnam, Malaysia, Brunei, the Phillipines and Taiwan, has become a particular flashpoint.

China has arrested hundreds of Vietnamese fishermen in recent years. It has elevated its claim in the South China Sea to a “core issue” on par with Taiwan, Xinjiang and Tibet. Wary capitals in the region have been snapping up military hardware and drawing nearer to Washington. Even regional heavyweight Indonesia, which has stayed above the fray and does not claim any islands in the South China Sea, recently took up the defense of its ASEAN allies at the United Nations, stating China’s claim “clearly lacks international legal basis.” Secretary Hillary Clinton did the same on July 23 at the ASEAN Regional Forum, insisting “freedom of navigation, open access to Asia’s maritime commons and respect for international law in the South China Sea” were in America’s “national interest.” Beijing is still outraged that the U.S. has waded into the South China Sea imbroglio.

But Mrs Clinton’s stand risks being undermined by Mr Obama’s provocative weakness in the Yellow Sea. After weeks of coyness, Pentagon spokesman Geoff Morrell announced in August that the George Washington would take part in scheduled military exercises in the Yellow Sea in the coming months. James Steinberg, deputy secretary of state, told China it had no one to blame but itself: "China is suffering the indignity of exercises close to its shores, and though they are not directed at China, the exercises are a direct result of China's support for North Korea and unwillingness to denounce their aggression." However, the administration again changed course on August 20th, when a military spokesman announced the George Washington would not participate in September’s exercises, adding only that it “would operate in the waters off the Korean peninsula in future exercises.”

From the first sign of hesitation, Mr Obama signalled to China that US policy is subject to intimidation. Each subsequent reversal has only emboldened Beijing. Much of the political leadership of China still seems to prefer co-operation over confrontation with the United States, and ties between the two countries have grown remarkably broad if not particularly deep. But hardliners in the Communist Party, and particularly in the PLA, clearly resent America’s influence in Asia and are growing more assertive by the year in their attempts to roll that influence back. Damage has been done to US credibility by this whole episode, but the Obama administration must stand by its initial pledge to send the George Washington to the Yellow Sea. With tensions between Japan and China fast on the rise after the arrest of the Chinese trawler captain, there is no better time to send a message to America’s allies that US influence in Asia will not be compromised by China’s rise.

Security situation around Japan getting more severe: KanPrime Minister Naoto Kan delivers a speech as he attends the inspection parade of the Ground Self-Defense Force at Asaka base on Oct. 24. (Mainichi)

TOKYO (Kyodo) -- Prime Minister Naoto Kan said Sunday the security situation around Japan has become more severe, given North Korea's missile and nuclear developments, as well as China intensifying its marine activities.

While attending the inspection parade of Ground Self-Defense Force at Asaka base in Tokyo and referring to China's military enhancement, Kan said, "We need to keep a posture that enables us to cope with various situations effectively."

"In order to build a truly effective defense capability, we will compile an outline of a new defense program by the end of the year that will meet future needs," he said.

He also showed willingness to enhance the Japan-U.S. alliance and promote activities to improve international security.

Taking Harder Stance Toward China, Obama Lines Up AlliesBy MARK LANDLER and SEWELL CHANPublished: October 25, 2010WASHINGTON — The Obama administration, facing a confrontational relationship with China on exchange rates, trade and security issues, is stiffening its approach toward Beijing, seeking allies to confront a newly assertive power that officials now say has little intention of working with the United States.

In a shift from its assiduous one-on-one courtship of Beijing, the administration is trying to line up coalitions — among China’s next-door neighbors and far-flung trading partners — to present Chinese leaders with a unified front on thorny issues like the currency and their country’s territorial claims in the South China Sea.

The advantages and limitations of this new approach were on display over the weekend at a meeting of the world’s largest economies in South Korea. The United States won support for a concrete pledge to reduce trade imbalances, which will put more pressure on China to allow its currency to rise in value.

But Germany, Italy and Russia balked at an American proposal to place numerical limits on these imbalances, a step that would have further isolated Beijing. That left the Treasury secretary, Timothy F. Geithner, to make an unscheduled stop in China on his way home from South Korea to discuss the deepening tensions over exchange rates with a top Chinese finance official.

Administration officials speak of an alarming loss of trust and confidence between China and the United States over the past two years, forcing them to scale back hopes of working with the Chinese on major challenges like climate change, nuclear nonproliferation and a new global economic order.

The latest source of tension is over reports that China is withholding shipments of rare-earth minerals, which the United States uses to make advanced equipment like guided missiles. Administration officials, clearly worried, said they did not know whether Beijing’s motivation was strategic or economic.

“This administration came in with one dominant idea: make China a global partner in facing global challenges,” said David Shambaugh, director of the China policy program at George Washington University. “China failed to step up and play that role. Now, they realize they’re dealing with an increasingly narrow-minded, self-interested, truculent, hyper-nationalist and powerful country.”

To counter what some officials view as a surge of Chinese triumphalism, the United States is reinvigorating cold war alliances with Japan and South Korea, and shoring up its presence elsewhere in Asia. This week, Secretary of State Hillary Rodham Clinton will visit Vietnam for the second time in four months, to attend an East Asian summit meeting likely to be dominated by the China questions.

Next month, President Obama plans to tour four major Asian democracies — Japan, Indonesia, India and South Korea — while bypassing China. The itinerary is not meant as a snub: Mr. Obama has already been to Beijing once, and his visit to Indonesia has long been delayed. But the symbolism is not lost on administration officials.

Jeffrey A. Bader, a major China policy adviser in the White House, said China’s muscle-flexing became especially noticeable after the 2008 economic crisis, in part because Beijing’s faster rebound led to a “widespread judgment that the U.S. was a declining power and that China was a rising power.”

But the administration, he said, is determined “to effectively counteract that impression by renewing American leadership.”

Political factors at home have contributed to the administration’s tougher posture. With the economy sputtering and unemployment high, Beijing has become an all-purpose target. In this Congressional election season, candidates in at least 30 races are demonizing China as a threat to American jobs.

At a time of partisan paralysis in Congress, anger over China’s currency has been one of the few areas of bipartisan agreement, culminating in the House’s overwhelming vote in September to threaten China with tariffs on its exports if Beijing did not let its currency, the renminbi, appreciate.

The trouble is that China’s own domestic forces may cause it to dig in its heels. With the Communist Party embarking on a transfer of leadership from President Hu Jintao to his anointed successor, Xi Jinping, the leadership is wary of changes that could hobble China’s growth.

There are also increasingly sharp divisions between China’s civilian leaders and elements of the People’s Liberation Army. Many Chinese military officers are openly hostile toward the United States, convinced that its recent naval exercises in the Yellow Sea amount to a policy of encircling China.

Even the administration’s efforts to collaborate with China on climate change and nonproliferation are viewed with suspicion by some in Beijing.

Mr. Obama’s aides, many of them veterans of the Clinton years, understand that especially on economic issues, there are elements of brinkmanship in the relationship, which can imply more acrimony than actually exists.

But the White House was concerned enough that last month it sent a high-level delegation to Beijing that included Mr. Bader; Lawrence H. Summers, the departing director of the National Economic Council; and Thomas E. Donilon, who has since been named national security adviser.

“We were struck by the seriousness with which they shared our commitment to managing differences and recognizing that our two countries were going to have a very large effect on the global economy,” Mr. Summers said.

Just before the meeting, China began allowing the renminbi to rise at a somewhat faster rate, though its total appreciation, since Beijing announced in June that it would loosen exchange-rate controls, still amounts to less than 3 percent. Economists estimate that the currency is undervalued by at least 20 percent.

Meanwhile, trade tensions between the two sides are flaring anew. The administration recently agreed to investigate charges by the United Steelworkers that China was violating trade laws with its state support of clean-energy technologies. That prompted China’s top energy official, Zhang Guobao, to accuse the administration of trying to win votes — a barb that angered White House officials.

Of the halt in shipments of rare-earth minerals, Mr. Summers said, “There are serious questions, both in the economic and in the strategy realm, that are going to require close study within our government.”

Beijing had earlier withheld these shipments to Japan, after a spat over a Chinese fishing vessel that collided with Japanese patrol boats near disputed islands. It was one of several recent provocative moves by Beijing toward its neighbors — including one that prompted the administration to enter the fray.

In Hanoi in July, Mrs. Clinton said the United States would help facilitate talks between Beijing and its neighbors over disputed islands in the South China Sea. Chinese officials were livid when it became clear that the United States had lined up 12 countries behind the American position.

With President Hu set to visit Washington early next year, administration officials said Mrs. Clinton would strike a more harmonious note in Asia this week. For now, they said, the United States feels it has made its point.

“The signal to Beijing ought to be clear,” Mr. Shambaugh said. “The U.S. has other closer, deeper friends in the region.”

On the eve of the G20 summit in London, "Unhappy China" has stirred debate about whether China should have a greater role on the world stage. Although the country will soon overtake Japan as the world's second-largest economy, China is not included in the G8 and is a second tier member of the G20. Beijing has little influence in the World Bank or the International Monetary Fund and is highly vulnerable to changes in the value of the dollar.

"We still feel suppressed because we are sometimes condemned or criticised by the western world," said Zhang Xiaobo, the book's publisher.

The five authors of the book advocate a tougher line against China's enemies, including punishment for President Nicholas Sarkozy of France, who met the Dalai Lama last year. The book takes a robust view of Western criticism of China's behaviour in Tibet. "You can start a war if you have the guts, otherwise shut up!" it says.

Another passage reads: "If China stood as the world's top country, it would not act like the United States, which has been irresponsible, lazy and greedy and engaged in robbery and cheating. They have brought economic recession to the whole world."

The book is the latest sign of growing Chinese nationalism, a trend that became highly visible during the riots in Tibet last March.

Spurred on by the government, Chinese nationalists vented their anger at the depiction of Tibet in the West and at the protests over the Olympic torch passing through Paris and London.

Meanwhile, the recent confrontation between America and China over the harassment of a US surveillance ship in the South China sea and Beijing's proposal that the dollar should be replaced as the global reserve currency, have shown China's potential for greater military and economic power.

"Unhappy China" is already into its second print run, while China's major web portals and social networking sites have their own "Unhappy China" forums.

Rampant issuance of dollars by the United States is saddling China with "imported inflation", Chinese commerce minister Chen Deming was quoted as saying by state media on Wednesday.

"Given the current situation, companies have thought ahead and prepared for exchange rate fluctuations as well as an increase in labour costs," Chen said, according to the state-run China Business News.

"But because the issuance of dollars is out of control, and international commodities prices are continuing to rise, China is confronted with imported inflation, which has created major uncertainties for businesses," he said.

The comments came ahead of a meeting of the US Federal Reserve next week at which the central bank is expected to announce additional stimulus measures.

While critics in the United States accuse China of artificially undervaluing its currency to give exporters an unfair advantage, Beijing says Washington is foisting its economic woes on the rest of the world by printing more money.

A Chinese scientific research center has built the fastest supercomputer ever made, replacing the United States as maker of the swiftest machine, and giving China bragging rights as a technology superpower.

The computer, known as Tianhe-1A, has 1.4 times the horsepower of the current top computer, which is at a national laboratory in Tennessee, as measured by the standard test used to gauge how well the systems handle mathematical calculations, said Jack Dongarra, a University of Tennessee computer scientist who maintains the official supercomputer rankings.

Although the official list of the top 500 fastest machines, which comes out every six months, is not due to be completed by Mr. Dongarra until next week, he said the Chinese computer “blows away the existing No. 1 machine.” He added, “We don’t close the books until Nov. 1, but I would say it is unlikely we will see a system that is faster.”

Officials from the Chinese research center, the National University of Defense Technology, are expected to reveal the computer’s performance on Thursday at a conference in Beijing. The center says it is “under the dual supervision of the Ministry of National Defense and the Ministry of Education.”

The race to build the fastest supercomputer has become a source of national pride as these machines are valued for their ability to solve problems critical to national interests in areas like defense, energy, finance and science. Supercomputing technology also finds its way into mainstream business; oil and gas companies use it to find reservoirs and Wall Street traders use it for superquick automated trades. Procter & Gamble even uses supercomputers to make sure that Pringles go into cans without breaking.

And typically, research centers with large supercomputers are magnets for top scientific talent, adding significance to the presence of the machines well beyond just cranking through calculations.

Over the last decade, the Chinese have steadily inched up in the rankings of supercomputers. Tianhe-1A stands as the culmination of billions of dollars in investment and scientific development, as China has gone from a computing afterthought to a world technology superpower.

“What is scary about this is that the U.S. dominance in high-performance computing is at risk,” said Wu-chun Feng, a supercomputing expert and professor at Virginia Polytechnic Institute and State University. “One could argue that this hits the foundation of our economic future.”

Modern supercomputers are built by combining thousands of small computer servers and using software to turn them into a single entity. In that sense, any organization with enough money and expertise can buy what amount to off-the-shelf components and create a fast machine.

The Chinese system follows that model by linking thousands upon thousands of chips made by the American companies Intel and Nvidia. But the secret sauce behind the system — and the technological achievement — is the interconnect, or networking technology, developed by Chinese researchers that shuttles data back and forth across the smaller computers at breakneck rates, Mr. Dongarra said.

“That technology was built by them,” Mr. Dongarra said. “They are taking supercomputing very seriously and making a deep commitment.”

The Chinese interconnect can handle data at about twice the speed of a common interconnect called InfiniBand used in many supercomputers.

For decades, the United States has developed most of the underlying technology that goes into the massive supercomputers and has built the largest, fastest machines at research laboratories and universities. Some of the top systems simulate the effects of nuclear weapons, while others predict the weather and aid in energy research.

In 2002, the United States lost its crown as supercomputing kingpin for the first time in stunning fashion when Japan unveiled a machine with more horsepower than the top 20 American computers combined. The United States government responded in kind, forming groups to plot a comeback and pouring money into supercomputing projects. The United States regained its leadership status in 2004, and has kept it, until now.

At the computing conference on Thursday in China, the researchers will discuss how they are using the new system for scientific research in fields like astrophysics and bio-molecular modeling. Tianhe-1A, which is housed in a building at the National Supercomputing Center in Tianjin, can perform mathematical operations about 29 million times faster than one of the earliest supercomputers, built in 1976.

For the record, it performs 2.5 times 10 to the 15th power mathematical operations per second.

Mr. Dongarra said a long-running Chinese project to build chips to rival those from Intel and others remained under way and looked promising. “It’s not quite there yet, but it will be in a year or two,” he said.

He also said that in November, when the list comes out, he expected a second Chinese computer to be in the top five, culminating years of investment.

“The Japanese came out of nowhere and really caught people off guard,” Mr. Feng said. “With China, you could see this one coming.”

Steven J. Wallach, a well-known computer designer, played down the importance of taking the top spot on the supercomputer rankings.

“It’s interesting, but it’s like getting to the four-minute mile,” Mr. Wallach said. “The world didn’t stop. This is just a snapshot in time.”

The research labs often spend weeks tuning their systems to perform well on the standard horsepower test. But just because a system can hammer through trillions of calculations per second does not mean it will do well on the specialized jobs that researchers want to use it for, Mr. Wallach added.

The United States has plans in place to make much faster machines out of proprietary components and to advance the software used by these systems so that they are easy for researchers to use. But those computers remain years away, and for now, China is king.

“They want to show they are No. 1 in the world, no matter what it is,” Mr. Wallach said. “I don’t blame them.”

“What is scary about this is that the U.S. dominance in high-performance computing is at risk,” said Wu-chun Feng, a supercomputing expert and professor at Virginia Polytechnic Institute and State University. “One could argue that this hits the foundation of our economic future.”

The trend is bad but in my experience the supercomputer was made obsolete in the 1990s by American technology such as Fibre Channel that allow the linking of the processors of separate workstations at the speed of light eliminating the need or desirability of having massive number of processors in one box. Maybe that has changed by now in a lower price environment but I doubt the technology inside the box, processors and linking of processors, is of Chinese origin.

For five years, Mr. Huang was a scientist at a Dow Chemical lab in Indiana, studying ways to improve insecticides. But before he was fired in 2008, Mr. Huang began sharing Dow’s secrets with Chinese researchers, authorities say, then obtained grants from a state-run foundation in China with the goal of starting a rival business there.

Now, Mr. Huang, who was born in China and is a legal United States resident, faces a rare criminal charge — that he engaged in economic espionage on China’s behalf.

Law enforcement officials say the kind of spying Mr. Huang is accused of represents a new front in the battle for a global economic edge. As China and other countries broaden their efforts to obtain Western technology, American industries beyond the traditional military and high-tech targets risk having valuable secrets exposed by their own employees, court records show.

Rather than relying on dead drops and secret directions from government handlers, the new trade in business secrets seems much more opportunistic, federal prosecutors say, and occurs in loose, underground markets throughout the world.

Prosecutors say it is difficult to prove links to a foreign government, but intelligence officials say China, Russia and Iran are among the countries pushing hardest to obtain the latest technologies.

“In the new global economy, our businesses are increasingly targets for theft,” said Lanny A. Breuer, the assistant attorney general in charge of the Justice Department’s criminal division. “In order to stay a leader in innovation, we’ve got to protect these trade secrets.”

BAOTOU, China — When Japanese mineral traders learned in late September that China was blocking shipments of a vital commodity, the word came not from a government announcement but from dock workers in Shanghai.

In Baotou, a smoggy city in China’s Inner Mongolia, the air this week has an acrid, faintly metallic taste. Half of the global supply of rare earths comes from the hills north of the town. And on Thursday, the traders began hearing that the unannounced embargo of so-called rare earth minerals was ending — again, not from any Chinese government communiqué, but though back-channel word from their distributors.

Throughout the five weeks of the embargo, even when China expanded the rare earth shipping halt to include the United States and Europe, Beijing denied there was a ban. Whatever it was called, a shipping suspension that started amid China’s diplomatic dispute with Japan over a wayward fishing trawler escalated into a broader international trade issue.

The episode alarmed companies around the world that depend on rare earths, minerals that help make a wide range of high-tech products, including smartphones and smart bombs. China currently controls almost all of the world’s supply of rare earths, for which demand is soaring.

To many outsiders, the undeclared embargo looked like a pure power play — a sign China would wield its growing economic might and apply its chokehold on an important industrial resource with little regard for the conventions of international trade. The export quotas China continues to impose on rare earths, even when it does let ships leave the docks, are restricting global supplies and causing world market prices to soar far beyond what Chinese companies pay.

From the Chinese perspective, though, the issue looks very different.

China feels entitled to call the shots because of a brutally simple environmental reckoning: It currently controls most of the globe’s rare earths supply not just because of geologic good fortune, although there is some of that, but because the country has been willing to do dirty, toxic and often radioactive work that the rest of the world has long shunned.

Despite producing 95 percent of the world’s rare earths, China has only 37 percent of the world’s proven reserves. Sizable deposits are known to exist in the United States, Canada, Australia, India and Brazil, among other places.

Many of those countries, responding to the rising demand for rare earths and alarmed by the recent embargo, are now scrambling to develop new mines or renovate ones long considered not to be worth the effort. That includes an abandoned mine in California that the American company Molycorp is trying to refurbish.

But experts say that any meaningful new production from outside China is at least five years away, and that it will come with its own environmental cost calculus.

“China’s rare earth output cannot be raised fast enough to meet the entire world’s needs, as there are environmental factors to be taken into consideration with an increase in rare earth production,” said Zhang Peichen, the deputy director of the government-backed Baotou Research Institute of Rare Earths, the main research group for the Chinese industry.

Across China, rare earth mines have scarred valleys by stripping topsoil and pumping thousands of gallons of acid into streambeds. The environmental costs are palpable here in Baotou, a smoggy mining and steel city in China’s Inner Mongolia, where the air this week had an acrid, faintly metallic taste.

Half of the global supply of rare earths comes from a single iron ore mine in the hills north of Baotou. After the iron is removed, the ore is processed at weather-beaten refineries in Baotou’s western outskirts to extract the rare earths minerals.

The refineries and the iron ore processing mill pump their waste into an artificial lake here. The reservoir, four square miles and surrounded by an earthen embankment four stories high, holds a dark gray, slightly radioactive sludge laced with toxic chemical compounds.

The deadly lake is not far from the Yellow River watershed that supplies drinking water to much of northern China. The reservoir covers an area 100 times the size of the alumina factory waste pond that collapsed this month in Hungary, inundating villages there and killing at least nine people.

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Even before the Hungary disaster, Baotou authorities had begun a program to reinforce the levee here. Huge bulldozers are adding a thick surface layer of crushed stone to the embankments to protect them from the region’s harsh weather.

China Is Said to Resume Shipping Rare Earth Minerals (October 29, 2010) But the bottom of the reservoir was not properly lined when it was built decades ago, according to a rare earth engineer who insisted on anonymity because of the Chinese government’s sensitivity about the problem. The sludge, he said, has caused a slowly spreading stain of faint but detectable radioactivity in the groundwater that is spreading at a rate of 300 yards a year toward the Yellow River, seven miles to the south.

Much of the radioactivity associated with rare earths comes from the element thorium, which is not a rare earth but is typically found in the same ore. With the exception of unusual clay formations in southern China that contain medium and heavy rare earths with virtually no thorium, every other known commercial-grade rare earth deposit in the world is laced with thorium.

In Australia, engineers and lawyers have been working for three decades to find a safe, legal way to produce rare earths from a very rich deposit in the center of the country at Mount Weld. The mine’s current owner, Lynas Corporation, hopes to begin small-scale production there late next year, although technical challenges remain.

The only American rare earths mine, the Molycorp complex at Mountain Pass, Calif., was at one time the world’s leading producer. That was before it leaked faintly radioactive fluid into the nearby desert in the late 1990s, causing a costly cleanup that contributed to the mine’s closing in 2002. By then, very low Chinese prices had made the mine less economically viable.

Now Molycorp, which raised money in a public stock offering this past summer, is hoping to re-open the mine with higher safety and environmental standards. And it is betting that new technologies can drive its operating costs lower than the level of Chinese mines. Large-scale production, though, may still be several years away.

The mines of southern China are essentially free of thorium and have rare earths that are easily separated from the clay by dumping the ore in acid. But this relatively easy process, and soaring prices on the world market, has led to the development of many illegal mines, which sell to organized crime syndicates that pay for rare earth concentrate with sacks of cash.

Beijing officials have sent out police squads since May to shut down the outlaw mines, arrest their operators and destroy their equipment with blowtorches, rare earth industry officials said.

“The damage that has been done in south China is considerable,” said Judith Chegwidden, a managing director specializing in rare earths at the Roskill Consulting Group in London.

To point out China’s environmental and supply concerns is not to overlook the economic benefits the nation accrues by restricting exports. The global shortage gives foreign companies a reason to move even more of their rare earth-dependent operations to China, to produce key components for a wide range of products.

A Chinese official has acknowledged as much. “To use moderation in the control of the production of rare earth resources and reduce exports to an acceptable level is to attract more Chinese and foreign investors into the region,” Zhao Shuanglian, the vice chairman of Inner Mongolia, said last year, according to China’s official Xinhua news agency.

Meanwhile, China’s own fast-growing manufacturing industries now consume more rare earths than the rest of the world combined. And Beijing has done nothing to curb that domestic demand.

That apparent double standard could prove important if, as some trade experts have predicted, the United States, Europe and Japan bring a World Trade Organization case accusing China of unfairly restricting exports through a system of quotas and duties.

Alan Wolff, a former American trade official who now heads the international trade practice at the law firm Dewey & LeBoeuf in Washington, said China might face a skeptical audience at the W.T.O.

“A panel would sympathize with a genuine environmental objective,” Mr. Wolff said. “But I do not think it would sympathize with cutting off supply disproportionately to foreign users in the name of saving the environment.”

HANOI, Vietnam — China’s military expansion and assertive trade policies have set off jitters across Asia, prompting many of its neighbors to rekindle old alliances and cultivate new ones to better defend their interests against the rising superpower.

A whirl of deal-making and diplomacy, from Tokyo to New Delhi, is giving the United States an opportunity to reassert itself in a region where its eclipse by China has been viewed as inevitable.

President Obama’s trip to the region this week, his most extensive as president, will take him to the area’s big democracies, India, Indonesia, South Korea and Japan, skirting authoritarian China. Those countries and other neighbors have taken steps, though with varying degrees of candor, to blunt China’s assertiveness in the region.

Mr. Obama and Prime Minister Manmohan Singh of India are expected to sign a landmark deal for American military transport aircraft and are discussing the possible sale of jet fighters, which would escalate the Pentagon’s defense partnership with India to new heights. Japan and India are courting Southeast Asian nations with trade agreements and talk of a “circle of democracy.” Vietnam has a rapidly warming rapport with its old foe, the United States, in large part because its old friend, China, makes broad territorial claims in the South China Sea.

The deals and alliances are not intended to contain China. But they suggest a palpable shift in the diplomatic landscape, on vivid display as leaders from 18 countries gathered this weekend under the wavelike roof of Hanoi’s futuristic convention center, not far from Ho Chi Minh’s mausoleum, for a meeting suffused by tensions between China and its neighbors.

China’s escalating feud with Japan over another set of islands, in the East China Sea, stole the meeting’s headlines on Saturday, and Secretary of State Hillary Rodham Clinton proposed three-way negotiations to resolve the issue.

Most Asian countries, even as they argue that China will inevitably replace the United States as the top regional power, have grown concerned at how quickly that shift is occurring, and what China the superpower may look like.

China’s big trading partners are complaining more loudly that it intervenes too aggressively to keep its currency undervalued. Its recent restrictions on exports of crucial rare earths minerals, first to Japan and then to the United States and Europe, raised the prospect that it may use its dominant positions in some industries as a diplomatic and political weapon.

And its rapid naval expansion, combined with a more strident defense of its claims to disputed territories far off its shores, has persuaded Japan, South Korea, Vietnam and Singapore to reaffirm their enthusiasm for the American security umbrella.

“The most common thing that Asian leaders have said to me in my travels over this last 20 months is, ‘Thank you, we’re so glad that you’re playing an active role in Asia again,’ ” Mrs. Clinton said in Hawaii, opening a seven-country tour of Asia that included a last-minute stop in China.

Few of China’s neighbors voice their concerns about the country publicly, but analysts and diplomats say they express wariness about the pace of China’s military expansion and the severity of its trade policies in private.

“Most of these countries have come to us and said, ‘We’re really worried about China,’ ” said Kenneth G. Lieberthal, a China adviser to President Bill Clinton who is now at the Brookings Institution.

The Obama administration has been quick to capitalize on China’s missteps. Where officials used to speak of China as the Asian economic giant, they now speak of India and China as twin giants. And they make clear which one they believe has a closer affinity to the United States.

“India and the United States have never mattered more to each other,” Mrs. Clinton said. “As the world’s two largest democracies, we are united by common interests and common values.”

As Mr. Obama prepares to visit India in his first stop on his tour of Asian democracies, Mr. Singh, India’s prime minister, will have just returned from his own grand tour — with both of them somewhat conspicuously, if at least partly coincidentally, circling China.

None of this seems likely to lead to a cold war-style standoff. China is fully integrated into the global economy, and all of its neighbors are eager to deepen their ties with it. China has fought no wars since a border skirmish with Vietnam three decades ago, and it often emphasizes that it has no intention of projecting power through the use of force.

At the same time, fears that China has become more assertive as it has grown richer are having real consequences.

India is promoting itself throughout the region as a counterweight to China; Japan is settling a dispute with the United States over a Marine air base; the Vietnamese are negotiating a deal to obtain civilian nuclear technology from the United States; and the Americans, who had largely ignored the rest of Asia as they waged wars in Afghanistan and Iraq, see an opportunity to come back in a big way.

In July, for example, Mrs. Clinton reassured Vietnam and the Philippines by announcing that the United States would be willing to help resolve disputes between China and its neighbors over a string of strategically important islands in the South China Sea.

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China’s foreign minister, Yang Jiechi, reacted furiously, accusing the United States of plotting against it, according to people briefed on the meeting. Mr. Yang went on to note that China was a big country, staring pointedly at the foreign minister of tiny Singapore. Undaunted, Mrs. Clinton not only repeated the American pledge on the South China Sea in Hanoi on Saturday, but expanded it to include the dispute with Japan. (Marc: This seems to me a significant play by Clinto)

China’s rise as an authoritarian power has also revived a sense that democracies should stick together. K. Subrahmanyam, an influential strategic analyst in India, noted that half the world’s people now live in democracies and that of the world’s six biggest powers, only China has not accepted democracy.

“Today the problem is a rising China that is not democratic and is challenging for the No. 1 position in the world,” he said.

Indeed, how to deal with China seems to be an abiding preoccupation of Asia’s leaders. In Japan, Prime Minister Naoto Kan and Mr. Singh discussed China’s booming economy, military expansion and increased territorial assertiveness.

South Korea was deeply frustrated earlier this year when China blocked an explicit international condemnation of North Korea for sinking a South Korean warship, the Cheonan. South Korea accused North Korea of the attack, but China, a historic ally of the North, was unwilling to hold it responsible.

India has watched nervously as China has started building ports in Sri Lanka and Pakistan, extending rail lines toward the border of Nepal, and otherwise seeking to expand its footprint in South Asia.

India’s Defense Ministry has sought military contacts with a host of Asian nations while steadily expanding contacts and weapons procurements from the United States. The United States, American officials said, has conducted more exercises in recent years with India than with any other nation.

Mr. Singh’s trip was part of his “Look East” policy, intended to broaden trade with the rest of Asia. He has said it was not related to any frictions with China, but China is concerned. On Thursday, People’s Daily, the Communist Party newspaper, ran an opinion article asking, “Does India’s ‘Look East’ Policy Mean ‘Look to Encircle China’?”

That wary view may well reflect China’s reaction to the whole panoply of developments among its neighbors.

“The Chinese perceived the Hanoi meeting as a gang attack on them,” said Charles Freeman, an expert on Chinese politics and economics at the Center for Strategic and International Studies. “There’s no question that they have miscalculated their own standing in the region.”

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HANOI, Vietnam — With tensions between China and Japan spilling out at an East Asian summit meeting here, the United States is trying to defuse an escalating diplomatic row over their competing claims to a cluster of small islands in the East China Sea.

On Saturday, Secretary of State Hillary Rodham Clinton proposed a three-way meeting with China and Japan to resolve the dispute, which has raged since last month when Japan detained the captain of a Chinese fishing vessel that struck two Japanese patrol boats near the islands.

“We have certainly encouraged both Japan and China to seek peaceful resolution of any disagreements that they have,” Mrs. Clinton said at a news conference after the summit meeting ended. “It is in all of our interest for China and Japan to have stable, peaceful relations.”

In private conversations with Chinese and Japanese diplomats, Mrs. Clinton “made very clear to both sides that we want the temperature to go down on these issues,” a senior official said. American officials said they were troubled by what one called a sudden, drastic increase in tensions.

As the United States, Russia and 16 Asian nations gathered in Hanoi to discuss regional cooperation, China’s aggressive maritime and territorial claims were sowing unease with several of its neighbors.

When Japan last week reasserted its sovereignty over the islands — which it calls the Senkaku and China calls the Diaoyu — a senior Chinese official accused it of ruining the atmosphere of the summit meeting.

The United States, which had been mostly a bystander in such disputes, has taken a more active role under the Obama administration. Though it has no position on the sovereignty claims, Mrs. Clinton said the United States viewed the islands as protected under the terms of its defense treaty with Japan, which means it will defend them from any foreign attack.

That statement brought a rebuke from the Chinese Foreign Ministry spokesman, Ma Zhaoxu, who said China “will never accept any word or deed that includes the Diaoyu Islands within the scope” of the treaty.

On another issue that has caused friction lately — China’s halting of shipments of strategically important minerals to the United States, Japan and Europe — the Chinese government seemed eager to reassure.

In a meeting with Mrs. Clinton, Foreign Minister Yang Jiechi gave “very clear indications” that China would fulfill its contracts and be a “reliable supplier,” according to an American official.

“While we’re pleased by the clarification received from the Chinese government,” Mrs. Clinton said, “we still think the world as a whole needs to find alternatives” to China as a supplier of the minerals, known as rare earth metals.

China began curtailing shipments to the United States and Europe of these minerals, which are used to make products like cellphones and wind turbines, after the dispute with Japan and a trade investigation by the Obama administration. Then last week, without explanation, Chinese officials said the shipments would resume.

Japan, which released the Chinese captain under heavy pressure from Beijing, had proposed a meeting with Chinese leaders in Hanoi to clear the air. But hopes for that were dashed when Japan’s foreign minister, Seiji Maehara, asserted Japan’s control over the islands last week.

In her formal remarks to the Asian leaders, Mrs. Clinton reiterated that the United States stood ready to help resolve another territorial dispute: one that pits China against Vietnam, the Philippines and other countries over a string of strategically significant islands in the South China Sea.

“The United States has a national interest in the freedom of navigation and unimpeded lawful commerce,” she said. “And when disputes arise over maritime territory, we are committed to resolving them peacefully based on customary international law.”

The administration’s position angers China, which has also sparred with the United States over currency policy and trade. Chinese officials have expressed concern that all the friction could get in the way of a visit to the United States early next year by President Hu Jintao.

At Beijing’s request, Mrs. Clinton added a last-minute China stop to her itinerary, meeting the state councilor for foreign affairs, Dai Bingguo, on Saturday on Hainan Island, east of Vietnam. She pressed Mr. Dai to use Beijing’s influence on North Korea to discourage it from “provocative” acts before the Group of 20 leaders’ meeting in Seoul next month.

Last weekend, the G-20 finance ministers met in South Korea to find areas of agreement in preparation for the main G-20 gathering in November. The Chinese rebuffed renewed American pleas for them to revalue their yuan. They rejected Secretary Geithner’s suggestion of a four percent cap on current account surpluses. However, in return for accepting America’s continued dollar debasement, the Chinese did agree to “look into” a revaluation of the yuan and the management of trade surpluses. They also agreed to an international self-policing regime to curb currency manipulation. This 'one-sided' compromise was hailed in the Western media as a triumph for Mr. Geithner. The US stock markets and dollar rallied. All looked good for the election season in November.

Unfortunately, compromises are never one-sided; they are only construed as such. Though the reporting failed to emphasize it, Mr. Geithner actually agreed to a massive shift of monetary power in exchange for China's empty concessions. The shareholdings and board composition of the huge and powerful International Monetary Fund (IMF) have now been shifted. China will now become the third largest shareholder of the IMF and the developing economies will get a six percent larger voting share. Two European states will lose their seats on the IMF's board in favor of developing countries.

Meanwhile, China, supported by Russia, India, and even Brazil, continued to lobby hard for the US dollar’s privileged role as the international reserve currency to be replaced by a wide basket of currencies and gold. To this end, the IMF has recently been given additional “emergency” lending facilities. These could be used in a coming sovereign default crisis to 'bail out' Western countries, at which point they would be unable to resist global economic governance under the guise of the reformed IMF.

In short, Secretary Geithner’s “victory” at the G-20 was one only King Pyrrhus could love.

But the blame cannot be laid entirely with Mr. Geithner. The fact that he left the meeting at least saving a bit of face for his delegation is a monumental achievement, considering the dismal condition of the US economy.

Fed Chairman Bernanke appears desperate to flood the United States with another round of quantitative easing (QE-2). In a $13 trillion economy, a release of anything less than $1 trillion would not be seen as effective. Remember, the Fed already injected over $1 trillion after the credit crunch – and we are still in recession. How much will it take to right this listing ship?

When Geithner pledged to China a “gradual” debasement of the dollar, it is astonishing that they didn’t laugh him out of the room.

If he were to make good on his pledge and convince Bernanke to cut QE-2 to, say, $500 billion, the US GDP and stock markets would almost certainly begin to contract. This would threaten the banking system with a second crisis borne out of the ashes, or toxic assets, of the first.

For a frame of reference, the US home mortgage market is valued at some $10.6 trillion. Indeed, foreclosures and past-due loans amount already to some 14 percent of the market, or about $1.5 trillion. Of this staggering figure, the loans delinquent or in foreclosure to which the top three banks (Bank of America, Wells Fargo and JP Morgan) are exposed amount to more than $600 billion, an amount roughly equal to the original TARP bailout fund.

At the same time, thanks to falsely low interest rates, the banks' net interest margins, or the difference between what they earn in loan interest and what they pay to their creditors, are being squeezed severely, while their non-interest earnings are falling, due to lower economic activity and the prohibitions contained in FinReg.

Finally, there is the murky question of how exposed the banks are to the massive derivatives market, a house of cards with a shaky foundation.

As we have described for several years, the US economy is virtually locked into a long arc of decline. There are no politically palatable solutions to this quandary. Until Americans are ready to take their lumps and accept a steep drop in their standard of living, the US government will have no leverage with the creditor nations and no ability to keep its promises. Therefore, we should celebrate when China even gives our Treasury Secretary an audience.

If China does manage to topple the US dollar from its perch as the international reserve currency, our economy will very likely move into free fall as decades of inflation come pouring back into the country. We will be forced to live within our means or face hyperinflation. Losing a few votes at the IMF is a small cost to delay this eventuality, but it also puts us one step closer to it.

SummaryU.S. Secretary of State Hillary Clinton stopped in Cambodia for two days during an Asia-Pacific tour, becoming the first U.S. secretary of state to visit Cambodia since 2003. Clinton’s visit comes as China is becoming more assertive in its periphery. China has a strong foothold in Cambodia, and the United States is attempting to counterbalance Beijing’s influence in the country.

AnalysisU.S. Secretary of State Hillary Clinton made a stop Oct. 31-Nov. 1 in Cambodia as part of an Asia-Pacific tour including visits to Vietnam, China, Malaysia, Papua New Guinea, New Zealand and Australia. Although this is Clinton’s sixth trip to Asia in the past two years, it is the first time a U.S. secretary of state has visited Cambodia since 2003. The visit comes as China is becoming more assertive, particularly in its periphery as it focuses on its relationships with Pakistan, Nepal, Cambodia and the South Pacific islands, and on territorial disputes in the East China Sea and South China Sea. As China’s assertiveness grows, the United States is taking steps toward a more concrete involvement in Asian affairs.

Speaking at a joint press conference with Cambodian Deputy Prime Minister and Foreign Minister Hor Namhong, Clinton pledged to strengthen the partnership between the United States and Cambodia. When asked by Cambodian students about China’s rising influence, Clinton called on Cambodia to avoid becoming too dependent on any one power and pointed out issues that Cambodia could raise with China, including the dams China built along the Mekong River that could threaten the water supply in downstream countries. Clinton’s statement reflects Washington’s intention to seek a balance of power against China in the country.

Beijing has a strong foothold in Cambodia. China was Cambodia’s top patron and provided military and economic assistance during the country’s Khmer Rouge regime, partly to counter the Soviet Union’s growing influence during the Cold War. After the collapse of the Khmer Rouge, Beijing maintained close ties with Cambodia under King Sihanouk and later Prime Minister Hun Sen. Over the years, China has been Cambodia’s top investor and aid provider. Chinese state-owned news agency Xinhua estimated that China has invested $5.7 billion — more than 20 percent of Cambodia’s total foreign direct investment — between 1994 and 2008. Beijing’s aid to Phnom Penh in 2008 accounted for more than one-fourth of total international aid to the country. Much like its economic assistance to other developing nations, China’s aid to Cambodia does not have as many conditions as aid from Western countries. Chinese aid built infrastructure including bridges, mines, power plants and roads across Cambodia, provided Cambodia with military equipment and helped train hundreds of Cambodian officials, students and soldiers. Moreover, Beijing’s aid programs always go directly to the government, which benefits the officials and improves ties at the governmental level.

From China’s perspective, though Cambodia is not as geopolitically significant as other countries like Myanmar, relations with Phnom Penh are an important counterbalance to Vietnam, a country with which China has had conflicts and long-term territorial disputes over areas of the South China Sea.

Cambodia and the U.S. Strategy in AsiaAs part as the broader U.S. strategy to re-engage Southeast Asia, which began in 2009, Washington is adopting both a multilateral approach — including participation in summits related to the Association of Southeast Asian Nations (ASEAN) — and a bilateral approach of dialogue with U.S. allies and nations that Washington previously neglected. Cambodia is no exception. Cambodia fits into broader U.S. interests, but it is not in itself geopolitically significant. Engaging a country where China has such strong influence will require more effort and strategy, and the result of such efforts is not clear (as opposed to dealing with U.S. allies in the region like the Philippines and Thailand, where it is easier to predict whether Washington will achieve its goals). However, Cambodia could benefit from even the initial steps of U.S. re-engagement.

U.S. military assistance to Cambodia resumed in 2005 after a ban following Hun Sen’s seizure of power in 1997. In 2007, U.S. direct assistance to Cambodia also resumed. Since then, the United States has provided more than $4.5 million worth of military equipment and direct assistance, which means Cambodia ranks third among Asia-Pacific countries that have received U.S. aid. Cambodia was also able to expand its military cooperation with the United States and take a broader security role in the region. This was exemplified in mid-July when Cambodia hosted the Angkor Sentinel 2010 military exercise, run jointly with the U.S. departments of defense and state and involving more than 1,000 troops from 26 countries.

In 2009, the Obama administration removed Cambodia from the list of Marxist-Leninist states, which allowed for increased U.S. investment through easier financing and loans. However, Washington suspended military assistance to Cambodia again earlier in 2010 — a move believed to be associated with the deportation of 20 Uighurs to China during Chinese Vice President Xi Jinping’s visit in December 2009. China seized upon this and later offered to provide a greater amount of the same military equipment to Cambodia without being asked. This highlighted the competition between China and the United States in the country, but it also served as a reminder to both sides that options remain open for Cambodia amid the larger powers’ rivalry.

Another benefit Cambodia can gain from Washington’s renewed interest has to do with the $445 million it has owed since the 1970s under the Lon Nol military government, which came into power in a U.S.-backed coup. Phnom Penh has called it a “dirty debt” and insists it cannot afford to repay it. Cambodia has requested that the United States write off the debt, citing China as one of the countries that has forgiven Cambodian debt in the past. Although Clinton’s visit is not meant to settle the matter, the United States and Cambodia have agreed to reopen negotiations over the issue. For Washington, the debt clearance is largely a symbolic matter, as it arranged a debt swap with Vietnam in 2000, but the issue does give the United States more leverage over Cambodia. Phnom Penh is also requesting that Washington grant more tax exemptions for Cambodian exports to the U.S. market to assist Cambodia’s economic development.

Though Cambodia stands to gain from Washington’s re-engagement with Phnom Penh, it must be cautious in managing the balance between China and the United States. Cambodia clearly does not want to jeopardize its relations with China, especially without concrete plans and a preferable offer from the United States. Cambodia’s loyalty to China was evident when, during the recent ASEAN summit, Cambodia backed China’s preference for one-on-one negotiations regarding territorial disputes in the South China Sea and called on ASEAN to avoid internationalizing the issue.

As long as the competition between the United States and China remains peaceful, small nations like Cambodia will look to benefit from the ongoing contest. Although Cambodia has displayed the ability to play a role in power games, it primarily will use offers it gets from both sides to demonstrate that its options remain open. Regardless, it is still difficult for Cambodia to make any sacrifices in the name of Washington because of China’s remaining economic, political and military influence.

Total US trade with China is about $400 Billion a year (330 in imports, 70 in exports, 2008). Only in a full scale war would that go to zero. Let's say we have have a trade interruption of half that - $200 Billion in lost business between the countries. Our economy is 3 1/2 times larger than theirs. Just from a numeric standpoint we are 3 1/2 times more able to absorb that loss.

Now let's say that loss causes economic contraction and social disorder on both sides. Our system is designed for revolution - to throw the bums out. We did it last week. Their system is not. They have a new generation entering leadership at the PRC politburo but really the same regime since 1949. A lot has changed in Chinese society since Tiananmen 1989. If they had a new uprising, I don't think anyone has any clear idea how it would play out. The leadership must carry a substantial fear of that, IMHO.

I have said several times that the PRC no longer has a belief in communism, not even the party members. Nationalism, stability and an improved standard of living is what the chinese power structure offers now to the masses. They literally must run as fast as they can just to stay in one place to keep the majority of the population that is still living as their impoverished grandparents did compliant. Still, the chinese withstand suffering very few if any of us can't imagine, and the PRC has a massive internal security structure more than willing to machinegun protesters en mass. Put today's Americans in the conditions of the great depression and see how ugly things get in short order. We may well just find out.

YIN XINHUI reached the peak of Mount Yi and surveyed the chaos. The 47-year-old Taoist abbess was on a sacred mission: to consecrate a newly rebuilt temple to one of her religion’s most important deities, the Jade Emperor. But there were as yet no stairs, just a muddy path up to the pavilion, which sat on a rock outcropping 3,400 feet above a valley. A team of workers was busy laying stone steps, while others planted sod, trees and flowers. Inside the temple, a breeze blew through windows that were still without glass, while red paint flecked the stone floor.

The revival of ancient religious practices in China is partly about belief — and partly about money.

“Tomorrow,” she said slowly, calculating the logistics. “They don’t have much ready. . . .” Fortunately, a dozen of her nuns had followed her up the path. Dressed in white tunics and black trousers, their hair in topknots, the nuns enthusiastically began unpacking everything they would need for the next day’s ceremony: 15 sacred scriptures, three golden crowns, three bells, two cordless microphones, two lutes, a zither, a drum, a cymbal and a sword. Soon the nuns were plucking and strumming with the confidence of veteran performers. Others set up the altar and hung their temple’s banner outside, announcing that for the next few days, Abbess Yin’s exacting religious standards would hold sway on this mountain.

The temple she was to consecrate was born of more worldly concerns. Mount Yi is in a poor part of China, and Communist Party officials had hit upon tourism as a way to move forward. They fenced in the main mountain, built a road to the summit and declared it a scenic park. But few tourists were willing to pay for a chance to hike up a rocky mountain. Enter religion. China is in the midst of a religious revival, and people will pay to visit holy sites. So the local government set out to rebuild the temple, which was wrecked by Red Guards during the Cultural Revolution, modestly rebuilt then torn down when the park was first constructed. Officials commissioned a 30-foot statue of the Jade Emperor, had it hauled to the peak and encased in the brilliant red pavilion. They then built a bell and a drum tower, as well as another set of halls devoted to minor deities.

All that was missing was a soul. For that, the temple had to be properly consecrated. The officials got in touch with Abbess Yin, widely regarded as a leading expert in Taoist ritual, and soon she was driving the 350 miles from her nunnery to Mount Yi.

As her rehearsals drew to a close, the abbess went over the next day’s schedule with a local official. All was in good shape, he said, except for one detail. Government officials were due to give speeches at 10:30 a.m. She would have to be finished by then, he said.

“No,” she replied. “Then it won’t be authentic. It takes four hours.” Could she start earlier and wrap up by then? No, the sun won’t be in the right position, she replied. The official peered up from the schedule and took a good look at her — who was this?

Abbess Yin smiled good-naturedly. At a little over five feet tall, she was solidly built, with a full, smooth face tanned from spending much of her life outdoors in the mountains. Her dress was always the same plain blue robe, and she did not wear jewelry or display other signs of wealth. She shunned electronics; her temple did not have a phone or Internet access. But over the past 20 years she had accomplished a remarkable feat, rebuilding her own nunnery on one of Taoism’s most important mountains. Unlike the temple here on Mount Yi — and hundreds of others across China — she had rejected tourism as a way to pay for the reconstruction of her nunnery, relying instead on donors who were drawn to her aura of earnest religiosity. She knew the real value of an authentic consecration ceremony and wasn’t about to back down.

The official tried again, emphasizing the government’s own rituals: “But they have planned to be here at 10:30. The speeches last 45 minutes, and then they have lunch. It is a banquet. It cannot be changed.”

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She smiled again and nodded her head: no. An hour later the official returned with a proposal: the four-hour ceremony was long and tiring; what if the abbess took a break at 10:30 and let the officials give their speeches? They would cut ribbons for the photographers and leave for lunch, but the real ceremony wouldn’t end until Abbess Yin said so. She thought for a moment and then nodded: yes.

The construction of holy sites (like the Taoist complex on Mount Mao) is seen by officials as a boon for the tourism industry.

RELIGION HAS LONG played a central role in Chinese life, but for much of the 20th century, reformers and revolutionaries saw it as a hindrance holding the country back and a key reason for China’s “century of humiliation.” Now, with three decades of prosperity under their belt — the first significant period of relative stability in more than a century — the Chinese are in the midst of a great awakening of religious belief. In cities, yuppies are turning to Christianity. Buddhism attracts the middle class, while Taoism has rebounded in small towns and the countryside. Islam is also on the rise, not only in troubled minority areas but also among tens of millions elsewhere in China.

It is impossible to miss the religious building boom, with churches, temples and mosques dotting areas where none existed a few years ago. How many Chinese reject the state’s official atheism is hard to quantify, but numbers suggest a return to widespread religious belief. In contrast to earlier surveys that showed just 100 million believers, or less than 10 percent of the population, a new survey shows that an estimated 300 million people claim a faith. A broader question in another poll showed that 85 percent of the population believes in religion or the supernatural.

Officially, religious life is closely regulated. The country has five recognized religions: Buddhism, Islam, Taoism and Christianity, which in China is treated as two faiths, Catholicism and Protestantism. Each of the five has a central organization headquartered in Beijing and staffed with officials loyal to the Communist Party. All report to the State Administration for Religious Affairs, which in turn is under the central government’s State Council, or cabinet. This sort of religious control has a long history in China. For hundreds of years, emperors sought to define orthodox belief and appointed many senior religious leaders.

Beneath this veneer of order lies a more freewheeling and sometimes chaotic reality. In recent months, the country has been scandalized by a Taoist priest who performed staged miracles — even though he was a top leader in the government-run China Taoist Association. His loose interpretation of the religion was hardly a secret: on his Web site he used to boast that he could stay underwater for two hours without breathing. Meanwhile, the government has made a conscious effort to open up. When technocratic Communists took control of China in the late 1970s, they allowed temples, churches and mosques to reopen after decades of forced closures, but Communist suspicion about religion persisted. That has slowly been replaced by a more laissez-faire attitude as authorities realize that most religious activity does not threaten Communist Party rule and may in fact be something of a buttress. In 2007, President Hu Jintao endorsed religious charities and their usefulness in solving social problems. The central government has also recently sponsored international conferences on Buddhism and Taoism. And local governments have welcomed temples — like the one on Mount Yi — as ways to raise money from tourism.

This does not mean that crackdowns do not take place. In 1999, the quasi-religious sect Falun Gong was banned after it staged a 10,000-person sit-down strike in front of the compound housing the government’s leadership in Beijing. That set off a year of protests that ended in scores of Falun Gong practitioners dying in police custody and the introduction of an overseas protest movement that continues today. In addition, where religion and ethnicity mix, like Tibet and Xinjiang, control is tight. Unsupervised churches continue to be closed. And for all the building and rebuilding, there are still far fewer places of worship than when the Communists took power in 1949 and the country had less than half the population, according to Yang Fenggang, a Purdue University professor who studies Chinese religion. “The ratio is still radically imbalanced,” Yang says. “But there’s now a large social space that makes it possible to believe in religion. There’s less problem believing.”

Taoism has closely reflected this history of decline and rebirth. The religion is loosely based on the writings of a mythical person named Laotzu and calls for returning to the Dao, or Tao, the mystical way that unites all of creation. Like many religions, it encompasses a broad swath of practice, from Laotzu’s high philosophy to a riotous pantheon of deities: emperors, officials, thunder gods, wealth gods and terrifying demons that punish the wicked in ways that make Dante seem unimaginative. Although scholars once distinguished between “philosophical Taoism” and “religious Taoism,” today most see the two strains as closely related. Taoist worshipers will often go to services on important holy days; they might also go to a temple, or hire a clergy member to come to their home, to find help for a specific problem: illness and death or even school exams and business meetings. Usually the supplicant will pray to a deity, and the priest or nun will stage ceremonies to summon the god’s assistance. Many Taoists also engage in physical cultivation aimed at wellness and contemplation, like qigong breathing exercises or tai chi shadowboxing.

As China’s only indigenous religion, Taoism’s influence is found in everything from calligraphy and politics to medicine and poetry. In the sixth century, for example, Abbess Yin’s temple was home to Tao Hongjing, one of the founders of traditional Chinese medicine. For much of the past two millenniums, Taoism’s opposite has been Confucianism, the ideology of China’s ruling elite and the closest China has to a second homegrown religion. Where Confucianism emphasizes moderation, harmony and social structure, Taoism offers a refuge from society and the trap of material success. Some rulers have tried to govern according to Taoism’s principle of wuwei, or nonaction, but by and large it is not strongly political and today exhibits none of the nationalism found among, say, India’s Hindu fundamentalists.

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During China’s decline in the 19th and 20th centuries, Taoism also weakened. Bombarded by foreign ideas, Chinese began to look askance at Taoism’s unstructured beliefs. Unlike other major world religions, it lacks a Ten Commandments, Nicene Creed or Shahada, the Muslim statement of faith. There is no narrative comparable to Buddhism’s story of a prince who discovered that desire is suffering and sets out an eightfold path to enlightenment. And while religions like Christianity acquired cachet for their association with lands that became rich, Taoism was pegged as a relic of China’s backward past.

But like other elements of traditional Chinese culture, Taoism has been making a comeback, especially in the countryside, where its roots are deepest and Western influence is weaker. The number of temples has risen significantly: there are 5,000 today, up from 1,500 in 1997, according to government officials. Beijing, which had just one functioning Taoist temple in 2000, now has 10. The revival is not entirely an expression of piety; as on Mount Yi, the government is much more likely to tolerate temples that also fulfill a commercial role. For Taoists like Abbess Yin, the temptation is to turn their temples into adjuncts of the local tourism bureau. And private donors who have helped make the revival possible may also face a difficult choice: support religion or support the state.Zhengzhou is one of China’s grittiest cities. An urban sprawl of 4.5 million, it owes its existence to the intersection of two railway lines and is now one of the country’s most important transport hubs. The south side is given over to furniture warehouses and markets for home furnishings and construction materials. One of the biggest markets is the five-story Phoenix City, with more than four million square feet of showrooms featuring real and knockoff Italian marble countertops, German faucets and American lawn furniture. Living in splendor on the roof of this mall like a hermit atop a mountain is one of China’s most dynamic and reclusive Taoist patrons, Zhu Tieyu.

Zhu is a short, wiry man of 50 who says he once threw a man off a bridge for the equivalent of five cents. “He owed me the money,” he recalled during a nighttime walk on the roof of Phoenix City. “And I did anything for money: bought anything, sold anything, dared to do anything.” But as he got older, he began to think more about growing up in the countryside and the rules that people lived by there. His mother, he said, deeply influenced him. She was uneducated but tried to follow Taoist precepts. “Taoist culture is noncompetitive and nonhurting of other people,” he says. “It teaches following the rules of nature.”

Once he started to pattern his life on Taoism, he says, he began to rise quickly in the business world. He says that by following his instincts and not forcing things — by knowing how to be patient and bide his time — he was able to excel. Besides Phoenix City, he now owns large tracts of land where he is developing office towers and apartment blocks. Although he is reticent to discuss his wealth or business operations, local news media say his company is worth more than $100 million and have crowned him “the king of building materials.” Articles almost invariably emphasize another aspect of Zhu: his eccentric behavior.

That comes from how he chooses to spend his wealth. Instead of buying imported German luxury cars or rare French wines, he has spent a large chunk of his fortune on Taoism. The roof of Phoenix City is now a 200,000-square-foot Taoist retreat, a complex of pine wood cabins, potted fruit trees and vine-covered trellises. It boasts a library, guesthouses and offices for a dozen full-time scholars, researchers and staff. His Henan Xinshan Taoist Culture Propagation Company has organized forums to discuss Taoism and backed efforts at rebuilding the religion’s philosophical side. He says he has spent $30 million on Taoist causes, a number that is hard to verify but plausible given the scope of his projects, including an office in Beijing and sponsorship of international conferences. His goal, he says, is to bring the philosophical grounding of his rural childhood into modern-day China.

Last year, Zhu invited several dozen European and North American scholars of Chinese religion on an all-expenses-paid trip to participate in a conference in Beijing. The group stayed in the luxurious China World Hotel and were bused to Henan province to visit Taoist sites. Demonstrating his political and financial muscle, Zhu arranged for the conference’s opening session to be held in Beijing’s Great Hall of the People, the Stalinesque conference center on Tiananmen Square. It is usually reserved for state events, but with the right connections and for the right price, it can be rented for private galas. In a taped address to participants, Zhu boasted that “I’ll spend any amount of money” on Taoism.

Zhu’s chief adviser, Li Jinkang, says the goal is to keep Taoism vital in an era when indigenous Chinese ideas are on the defensive. “Churches are everywhere. But traditional things are less so. So Chairman Zhu said: ‘What about our Taoism? Our Taoism is a really deep thing. If we don’t protect it, then what?’ ”

Balancing this desire with the imperatives of China’s political system is tricky. While the Communist Party has allowed religious groups to rebuild temples and proselytize, its own members are supposed to be good Marxists and shun religion. Like many big-business people, Zhu is also a party member. Two years ago, he became one of the first private business owners to set up a party branch in his company, earning him praise in the pages of the Communist Party’s official organ, People’s Daily. He has also established a party “school” — an indoctrination center for employees. His company’s Web site has a section extolling his party-building efforts and has a meeting room with a picture of Mao Zedong looking down from the wall. Although it might seem like an odd way to mix religion and politics, Taoism often deifies famous people; at least three Taoist temples in one part of China are dedicated to Chairman Mao.

Until recently, Zhu mostly ignored the contradiction, but he has become more cautious, emphasizing how he loved Taoist philosophy and playing down the religion. Still, Zhu continues to support conventional Taoism. His staff takes courses in a Taoist form of meditation called neigong, and he has sent staff members to document religious sites, like the supposed birthplace of Laotzu, who is worshiped as a god in Taoism. He also has close relations with folk-religious figures and plans to establish a “Taoist base” in the countryside to propagate Taoism. “The ancients were amazing,” Zhu says. “Taoism can save the world.”

WHEN ABBESS YIN started to rebuild her nunnery in 1991, she faced serious challenges. Her temple was located on Mount Mao, among low mountains and hills outside the eastern metropolis of Nanjing. It had been a center of Taoism from the fourth century until 1938, when Japanese troops burned some of the temple complex. As on Mount Yi, communist zealots completed the destruction in the 1960s. Her temple was so badly damaged that the forest reclaimed the land and only a few stones from the foundation could be found in the underbrush.

Unlike Mount Yi, Mount Mao is an extensive complex: six large temples with, altogether, about 100 priests and nuns. Just a 45-minute drive from Nanjing and two hours from Shanghai, it is a popular destination for day-trippers wanting to get out of the city. Even 20 years ago, when Abbess Yin arrived, tourism-fueled reconstruction was in full swing on Mount Mao. Two temples had escaped complete destruction, and priests began repairing them in the 1980s. The local government started charging admission, taking half the gate receipts. But the Taoists still got their share and plowed money back into reconstruction. More buildings meant higher ticket prices and more construction, a cycle typical of many religious sites. Although pilgrims began to avoid the temples because of the overt commercialism, tourists started to arrive in droves, bused in by tour companies that also got a cut of gate receipts. Last year, ticket sales topped $2.7 million.

Abbess Yin opted for another model. Trained in Taoist music, she set up a Taoist music troupe that toured the Yangtze River delta in a rickety old bus, stopping at communities that hired them to perform religious rituals. When I first met her in 1998, she used the money to rebuild one prayer hall on Mount Mao but refused to charge admission. Word of her seriousness began to spread around the region and abroad. Soon, her band of nuns were performing in Singapore, Hong Kong and Taiwan.

More nuns began to join. In the Quanzhen school of Taoism, which Abbess Yi follows, Taoist clergy members live celibate lives in monasteries and nunneries, often in the mountains. (In the other school, known as Zhengyi, they may marry and tend to live at home, making house calls to perform ceremonies.) For Abbess Yin’s young nuns, her temple provided security and calm in a world that is increasingly complicated. “Here, I can participate in something profound,” said one nun who asked to be identified only as Taoist Huang. “The outside world has nothing like this.” For Abbess Yin, the young people are a chance to mold Taoists in the image of her master. “The only people who are worth having are older than 80 or younger than 20.”

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Even now, Abbess Yin’s temple is low-key. There are no tourist attractions like cable cars, gift shops, teahouses or floodlit caves — and, unlike at most temples, still no admission fee. The atmosphere is also different. While in some temples, priests seem to spend most of their time hawking incense sticks or offering to tell people’s fortunes, her nuns are quiet and demure. Maybe this is why even in the 1990s, when her temple was reachable only by a dirt road, locals said it was ling — that it had spirit and was effective. In 1998, I saw a group of Taiwanese visitors abandon their bus and walk two miles to the temple so they could pray. “This is authentic,” one told me. “The nuns are real nuns, and it’s not just for show.”

With a growing reputation came donations. One reason that city people often underestimate Taoism is that its temples are mostly in the mountains, and its supporters rarely want to discuss their gifts. But one way to gauge its support is to look at the lists of benefactors, which are carved on stone tablets and set up in the back of the temple. In Abbess Yin’s temple, some tablets record 100,000 yuan ($15,000) donations, while others show 10,000 yuan gifts. But even those making just 100 yuan contributions get their names in stone. With the donations came the current plan to build the $1.5 million Jade Emperor Hall halfway up the mountain, making the Mount Mao complex visible for miles around. It is due to open on this weekend, with Taoists from Southeast Asia and across China expected to participate.

Abbess Yin’s success led the China Taoist Association to invite her to Beijing for training. She learned accounting, modern management methods and the government’s religious policy. Earlier this year she was placed on one of the association’s senior leadership councils. She has also begun speaking out on abuses on the religious scene, urging greater strictness inside Taoist temples and less emphasis on commerce. Many Taoists, she wrote in an essay reprinted in an influential volume, have become obsessed with making money and aren’t performing real religious services but just selling incense. Too many traveled around China, using temples as youth hostels instead of as places to study the Tao or to worship.

“Taoism is a great tradition, but our problem is we’ve had very fast growth, and the quality of priests is too low,” she told me. “Some people don’t even know the basics of Taoism but treat it like a business. This isn’t good in the long-term.”

THE DAY AFTER Abbess Yin’s standoff with the official, the big event on Mount Yi was due to start. She arrived early, making sure her nuns were ready at 7. The muddy path was now covered with stones that farmers had just hosed down, making them glisten in the early-morning sun. Workers scraped paint off the floor, inflated balloons and hung banners, while a television crew set up its equipment to film the politicians.

Inside the Jade Emperor Pavilion, the nuns milled around, checking one another’s clothes and hair. All, including the abbess, were wearing their white tunics and black knee breeches. They pulled on fresh blue robes and pink capes, while the abbess donned a brilliant red gown with a blue and white dragon embroidered on the back. She and her top two lieutenants affixed small golden crowns to their topknots. She was now transformed into a fashi, or ritual master. Something was about to happen.

Abbess Yin walked over to a drum about two feet in diameter and picked up two wooden sticks lying on top. She began pounding in alternating rhythms. The nuns knew their roles by heart and lined up in two rows, flanking the statue of the Jade Emperor, golden and beautiful, the god’s eyes beatific slits and his mouth slightly parted as if speaking to the people below. Still, for now the statue was just a block of wood. The ceremony would change that. It is called kai guang or “opening the eyes” — literally, opening brightness. Abbess Yin could open them, but it would take time.

Five minutes passed and sweat glistened on her forehead. Then, six of the nuns quietly took their places and started to play their instruments. A young woman plucked the zither, while another strummed the Chinese lute, or pipa. Another picked up small chimes that she began tinkling, while a nun next to her wielded a cymbal that she would use to punctuate the ceremony with crashes and hisses. Abbess Yin stopped drumming and began to sing in a high-pitched voice that sounded like something out of Peking Opera. Later during the ceremony she read and sang, sometimes alone and at other times with the nuns backing her. Always she was in motion: kneeling, standing, moving backward, turning and twirling, the dragon on her back seeming to come alive. It was physically grueling, requiring stamina and concentration. During the occasional lull, a young nun would hand her a cup of tea that she delicately shielded behind the sleeve of her robe and drank quickly. Gradually, people began to pay attention. The wives of several officials stood next to the altar and gawked, first in astonishment and then with growing respect for the intensity of the performance. When a police officer suggested they move back, they said: “No, no, we won’t be a bother. Please, we have to see it.” Workers, their jobs finished, sat at the back. Within an hour, about 50 onlookers had filled the prayer hall.

On cue, at 10:30, she stopped. A group of local leaders had assembled outside the hall. They announced the importance of the project and how they were promoting traditional culture. A ribbon was cut, applause sounded and television cameras whirred. Then the group piled into minibuses and rolled down to the valley for the hotel lunch.

The speeches were barely over when Abbess Yin picked up again. As the ceremony reached its climax, more and more people began to appear, seemingly out of nowhere, on the barren mountain face. Four policemen tried to keep order, linking arms to barricade the door so the nuns would have space for the ceremony. “Back, back, give the nuns room,” one officer said as the crowd pressed forward. People peered through windows or waited outside, holding cameras up high to snap pictures. “The Jade Emperor,” an old woman said, laying down a basket of apples as an offering. “Our temple is back.” Abbess Yin moved in front of the statue, praying, singing and kowtowing. This is the essence of the ritual — to create a holy space and summon the gods to the here and now, to this place at this moment.

Shortly after noon, when it seemed she had little strength left, Abbess Yin stopped singing. She held a writing brush in one hand and wrote a talismanic symbol in the air. Then she looked up: the sun was at the right point, slanting down into the prayer room. This was the time. She held out a small square mirror and deflected a sunbeam, which danced on the Jade Emperor’s forehead. The abbess adjusted the mirror slightly and the light hit the god’s eyes. Kai guang, opening brightness. The god’s eyes were open to the world below: the abbess, the worshipers and the vast expanse of the North China Plain, with its millions of people racing toward modern China’s elusive goals — prosperity, wealth, happiness.

a) less trinkets**China produces more than just trinkets. A very large percentage of our consumer goods come from China. A trade war will hurt lots of those already suffering and struggling to feed and clothe their families. As the dollar plunges downward, tariffs on chinese goods will make a tangible impact on our already declining standard of living.**

b) disruption of REEs**Which tends to have a serious impact on high tech dependent nations.**

c) higher interest rates due to Chinese not buying our bonds? (Is this inevitable anyway?)**Higher interest rates may be inevitable, but let's try to avoid that, because if China stops buying our bonds and others do as well and the US loses it's AAA rating, the most likely result is the end of the USA as we know it.We need to maintain the status quo until we can unfcuk ourselves.**

d) what else?**A struggling China may well decide to go for broke and move on Taiwan and other disputed territories, resulting in nothing good for asia or the rest of the world.**

"China produces more than just trinkets. A very large percentage of our consumer goods come from China."

GM has this right. It isn't the happy meal toys it is the things that fill people's shopping carts at Walmart, Home Depot etc. that people consider household essentials.

But it doesn't make any sense that China would stop selling to us short of war because that means to closing their cash register to our willing customers. The REE situation is different, but they appear to already be tightening the screws there, and it is OUR fault for shutting down our own supplies.

The US Government could slap a 20% duty for example on these imports, but that is a highly regressive tax on American consumers, not a direct penalty on China. Also I'm sure a violation of WTO trade agreements.

Maybe they attack Taiwan in a trade war but I don't see it unless they were planning to attack anyway. I think instead they will be busy at home with millions of layoffs.

A shorter answer I think is that a trade war right now would bring down the global economy - so neither side will do it. And I still think the economy and the regime in China is more fragile than ours.

In a visit to Miami, Chinese Ambassador Zhang Yesui said trade sanctions aren't the way to deal with China's undervalued yuan.BY MIMI WHITEFIELDmwhitefield@MiamiHerald.com

The Chinese ambassador to the United States said Thursday that if legislation allowing the U.S. to seek trade sanctions against nations it believes manipulate their currencies becomes law, it will set off a U.S.-China trade war.

In one of the most direct statements to date from a Chinese official, Ambassador Zhang Yesui said, ``If the president signs it, it will create a trade war between China and the United States. A trade war will not be good for anyone sitting in this room.''

Zhang made his comments in Miami during a forum organized by the U.S. Chamber of Commerce and the Greater Miami Chamber of Commerce to discuss business opportunities in China.

Critics say China should allow its yuan to float to address China's huge trade imbalance with the United States. Keeping the yuan cheap, they complain, gives China an unfair competitive advantage, making the price of Chinese products low for U.S. consumers and U.S. goods more expensive in the Chinese market.

As criticism mounts during this electoral cycle that China's big trade surplus contributes to U.S. job losses, calls for action against China have intensified.

In late September, the U.S. House of Representatives voted 348-79 for a bill that would allow the U.S. to take into account currency undervaluation to calculate duties on Chinese imports. A similar measure is expected to be introduced in the Senate after the midterm elections.

Zhang said he hopes the Senate doesn't take up a bill and laments that the issue has become politicized. ``I know politics can be very cruel sometimes,'' he said.

``Congress says the exchange rate is the main cause of the trade deficit, that if the currency appreciates it will create more U.S. jobs,'' said Zhang, who took up his post in March after serving as the Chinese ambassador to the United Nations.

Since 2000, he said, U.S. exports to China have grown by 33 percent -- and that has created more jobs for U.S. workers. China, the ambassador said, is actively expanding its domestic market and retail consumer sales are expected to reach $2 trillion this year.

Zhang also pointed out that from 2005 to 2007, when the Chinese currency appreciated against the dollar by 21 percent, the Chinese trade surplus with the United States still increased by about 20 percent.

Any disagreements over the impact of the yuan on the trade imbalance should be solved through dialogue and negotiation ``as equal partners,'' he said.

But frustration over China's undervalued yuan is clearly growing, and for some, the time frame for negotiation is just about over.

Earlier this week Treasury Secretary Timothy Geithner called the Chinese currency issue ``the central existential challenge facing the world economy'' and urged the International Monetary Fund to exert ``leverage'' on China.

One of the most outspoken critics of China has been New York Democratic Sen. Charles Schumer, who said he will push a sanction bill in the Senate.

While the House bill was being considered, Schumer said, ``China is merely pretending to take significant steps on its currency. This sucker's game is never going to stop unless we finally call their bluff.''

Schumer represents a state where some regions have suffered heavy job losses in recent years, and he points to outsourcing and unfair competition as the main culprits in the jobs exodus.

In Miami, Zhang spoke to a friendly crowd eager to hear about business possibilities in an economy that is growing at more than 9 percent a year. Last year, total trade between China and the Miami Customs District reached $3.9 billion, making China the region's fourth most important trading partner.

I think it's reasonable to assume that the news chopper crew is familiar with the skies around LA and found this to be very atypical. It would be nice if someone were to FOIA the FAA control tower comms and radar returns for the date and time the footage was taken for LAX and other SoCal airports.

So here is a theory:

Means: The People's Liberation Army Navy (Yes, that's their real name) has made serious improvements to their "blue water navy" and has surprised us in the past with their upgraded sub technology.

Motive: China has been very unhappy with the US Navy's navigation of international waters off of China's coast. There have been multiple confrontations and aggressive moves made by the PLAN towards US naval assets in those waters. Tensions in those waters have increased with the still unresolved disputes between China and Japan over uninhabited islands in the East China Sea (see my posts on the topic). Early on in the dispute, the SecDef and Adm. Mullen (If I recall correctly) made statements reaffirming the US-Japan defense treaty. In addition, I recall at least one instance where a PLA general made a direct threat to Los Angeles, saying that China would be willing to trade Shanghai for it in a war with the US.

Opportunity: It is my understanding that the anti-submarine infrastructure we had in place during the cold war no longer exists, or is a shadow if it's former self, allowing a new, stealthy Chinese sub to approach the west coast and launch a test missile as both a proof of concept and a message to the president and DoD that a military conflict in the pacific today can involve both sides of the pacific.________________________________________________________________________

Satellite imagery, passed to The Daily Telegraph, shows that a substantial harbour has been built which could house a score of nuclear ballistic missile submarines and a host of aircraft carriers.

In what will be a significant challenge to US Navy dominance and to countries ringing the South China Sea, one photograph shows China’s latest 094 nuclear submarine at the base just a few hundred miles from its neighbours.

Other images show numerous warships moored to long jettys and a network of underground tunnels at the Sanya base on the southern tip of Hainan island.

Of even greater concern to the Pentagon are massive tunnel entrances, estimated to be 60ft high, built into hillsides around the base. Sources fear they could lead to caverns capable of hiding up to 20 nuclear submarines from spy satellites.

The US Department of Defence has estimated that China will have five 094 nuclear submarines operational by 2010 with each capable of carrying 12 JL-2 nuclear missiles.

The images were obtained by Janes Intelligence Review after the periodical was given access to imagery from the commercial satellite company DigitalGlobe.

Analysts for the respected military magazine suggest that the base could be used for "expeditionary as well as defensive operations" and would allow the submarines to "break out to launch locations closer to the US".

It would now be "difficult to ignore" that China was building a major naval base where it could house its nuclear forces and increase it "strategic capability considerably further afield".

Yin Zhou has also called for China to build a naval base in the Middle East, which prompted China's Ministry of Defense to respond that, "China has no plans for an overseas naval base." [3]A new book by PLA Air Force (PLAAF) Colonel Dai Xu also paints a very dark picture of the future. "China cannot escape the calamity of war, and this calamity may come in the not-too-distant future, at most in 10 to 20 years," writes Dai Xu, according to Reuters. "If the US can light a fire in China's backyard, we can also light a fire in their backyard." [4]

Dai Xu is a widely quoted military analyst who comments frequently about Chinese defense-related matters.

"In recent years, some parts of the Chinese media have become more commercialized. This has led some publishers to focus on publishing sensationalist and nationalistic views that can attract a mass audience," said Bonnie Glaser, senior fellow at the Center for Strategic and International Studies in Washington, DC.

"Academics and PLA officers have seized this opportunity to write books advocating controversial positions in order to make money. Several PLA officers appear as pundits on Chinese TV programs and write for newspapers, viewing this as a means to promote their hardline views, but also to supplement their salaries."

Glaser said that Luo Yuan and Rear-Admiral Yang Yi, an expert with the Institute of Strategic Studies at the National Defense University, were excellent examples of outspoken senior Chinese officers.

Abraham Denmark, a fellow at the Center for a New American Security in Washington, DC, added China's former chief of military intelligence, General Xiong Guangkai, to this list. After his retirement in 2005, Xiong took charge of China's Institute for International Strategic Studies.

"He was very outspoken and rose to the rank of deputy chief of the general staff," said Denmark.

Xiong made huge headlines 15 years ago. At the end of a meeting in 1995 with former US ambassador Chas Freeman - news of the meeting would not be made public until early 1996 and even then Xiong's identity was not revealed - he reportedly said, "And finally, you do not have the strategic leverage that you had in the 1950s when you threatened nuclear strikes on us. You were able to do that because we could not hit back. But if you hit us now, we can hit back. So you will not make those threats. In the end you care more about Los Angeles than you do about Taipei."

Freeman would admit years later that he did not interpret these words as a threat. [6]

However, Xiong's comments in 1995 were not spontaneous or off-script, according to Bhaskar Roy, a strategic analyst and consultant with New Delhi-based South Asia Analysis Group.

"This was a message to the US from China's Central Military Commission [CMC], headed then by Jiang Zemin," said Roy. "On many military and strategic issues, the top echelon use military officials to float proposals either openly or in print, or surreptitiously to pry out reactions."

China does not rely on the PLA exclusively to get the word out. China threatened a military response to the perceived separatist statements of former Taiwan president Lee Teng-hui - "If the Taiwan authorities think the mainland can only launch a propaganda or psychological war, they are mistaken" - in an August 1999 editorial in China's Global Times magazine.

In that article, Global Times even took aim directly at US aircraft carriers by declaring that China's neutron bombs were more than enough to handle them.

This appeared just as China was preparing to celebrate the 50th anniversary of Communist Party rule, and just a few months after the US had bombed the Chinese Embassy in Belgrade, killing three Chinese civilians in the process. So it is safe to say that the sense of Chinese national pride as well as the sense of collective outrage was running at fever pitch that year, and that the tone of these comments in Global Times probably reflected Chinese sentiments at the time.

"Over the past 10 years a clear pattern has emerged whereby Chinese military officers are allowed to be more outspoken - especially in response to US actions and decisions - whenever tensions over Taiwan are mounting. However, what we are seeing today is much milder than what we saw in 1999, for example," said Rodger Baker, director of East Asia analysis at Stratfor, a Texas-based global intelligence firm.

"Yang Yi and Luo Yuan have both been outspoken in reaction to the Taiwan arms sale. Note that both are now retired. PLA officers caution that those individuals do not speak for the PLA," said Glaser. "The Chinese government does not encourage any such outspoken rhetoric, but they also do not discourage it."

"It is likely that allowing such views to be aired in the media serves their interests. It is a way of letting those frustrated with the US vent their anger. It may stimulate others to echo those views, but it also causes others to challenge those views," said Glaser. "And allowing such a debate in the media is increasingly tolerated by the government/party/military. Debates over North Korea's nuclear test and how China should respond is another example in which this has occurred."

Rather than being outspoken, Roy described these PLA officers as merely reflecting China's growing military and economic power - which is "leading to arrogant statements".

"Military exercises such as 'Strike - 09' and the military parade commemorating the 60th anniversary of the PRC [People's Republic of China] last year were meant to demonstrate that China had arrived at the global table. All statements of national importance made by military officers are cleared by the CMC, if not also by a member of the politburo standing committee. Articles written by [military officials] also have clearance from the appropriate higher authorities," said Roy, who described Yang Yi as "one of the leading spokesmen for the CMC".

"[At the time of the 60th anniversary celebration], Yang Yi described this show as China's strategy of a 'rich nation and strong military' and 'active defense embodying the power to control a crisis situation in the neighborhood for a favorable security environment'. The Active Defense doctrine is China's right to intervene beyond its borders [land, sea and air]," said Roy.

The uninvited guest: Chinese sub pops up in middle of U.S. Navy exercise, leaving military chiefs red-faced. American military chiefs have been left dumbstruck by an undetected Chinese submarine popping up at the heart of a recent Pacific exercise and close to the vast U.S.S. Kitty Hawk - a 1,000ft super carrier with 4,500 personnel on board. By the time it surfaced the 160ft Song Class diesel-electric attack submarine is understood to have sailed within viable range for launching torpedoes or missiles at the carrier.

The lone Chinese vessel slipped past at least a dozen other American warships which were supposed to protect the carrier from hostile aircraft or submarines.

And the rest of the costly defensive screen, which usually includes at least two U.S. submarines, was also apparently unable to detect it. They probably stole our stealth technology.

According to the Conference Board, a highly respected economic research association, China will overtake the US as the world’s biggest economy by 2012, or within two years.

OK, so in dollar terms, that’s obviously not going to be the case. It will be a lot longer than two years before China overtakes the US on that measure. But in terms of purchasing power parity, according to the Conference Board’s latest world economic outlook, China is already nearly there, and by 2020 will have reached a size of output which is nearly half as big again as the US.

"China will overtake the US as the world’s biggest economy by 2012, or within two years."

Put me down as ... not buying it. US GDP is 3 1/2 times that of China. I don't think the currency under-valuation is off by 3 1/2 fold.

Strong dollar or weak dollar? Please think about it - which is better? No country ever devalued its way to prosperity. A well known adage. Yes a weak currency helps the exporter to win the business but only in the same way that lowering your price does. Lowering your price means you make less. Then you invest back in that economy and it costs you more. Right? Undervaluation doesn't lead to prosperity according to (all?) economists. Why would massive undervaluation be a good thing from anyone's point of view? In business, why would anyone want to be more than a hair in price under their nearest competitor? ---From one of the comments at the link: "Best thing in this article is the photo - look closely." - (Obama is bowing to a totalitarian dictator.)

In my travel overseas (e.g. Slovenia, Switzerland this past year) my experience has been that on a PPP basis the US dollar is badly undervalued. This applies much more I think we all can agree to the dollar/yuan rate. While the group covered in the article may be overstating things quite a bit, the underlying premise of using PPP to more accurately compare the size of the two economies strikes me as sound.

I agree 100% that devaluing a currency in order to create jobs/export unemployment is a bad idea.

The curt knock on the door of his hotel room woke Alan Huang with a start. He looked at the clock: 5:30 am. Huang had been in Shenzhen, China, for only a few days; who could be looking for him at this hour? He groggily undid the lock—and found a half-dozen police officers in the corridor. The cops were there, they said, because the 37-year-old software engineer was a follower of the Falun Gong spiritual movement. It was December 1999, and the Beijing government had outlawed the sect just months earlier.

In fact, that’s why Huang had left his home in Sunnyvale, California, to come to Shenzhen. A Chinese computer programmer who had long ago emigrated to the US, Huang was back in China to protest the government’s jailing of thousands of his fellow practitioners. He hadn’t expected to join them.

Huang ended up packed into a cold cell with 20 other men, sleeping on the floor in shifts and forced to clean pigpens every day. Huang’s wife, back in California with their 3-year-old daughter, was terrified. After a very long two weeks and the help of a few American politicians, Huang and two other US-based Falun Gong practitioners who had accompanied him were released. “I got lucky because I was a US resident,” he says. “Others were not so lucky.”

It was Huang’s first experience with prison, but not with Communist Party repression. When he was an electrical engineering student at Shanghai’s Fudan University in the 1980s, Huang marched in the pro-democracy protests that roiled China. But the heady days in the streets came to a bloody end when the government sent tanks into Tiananmen Square. Huang wasn’t arrested, but some of his acquaintances disappeared. And he was shocked by the way the government’s ensuing propaganda barrage convinced many Chinese that the protesting students were themselves to blame for the bloodshed. Disillusioned, Huang left China, got his graduate degree at the University of Toronto, and moved to Silicon Valley in 1992. He spent most of the 1990s quietly living the immigrant-American dream, starting a family and building a career. Along the way, he also became one of the Bay Area’s hundreds of Falun Gong practitioners, leading study sessions and group exercises. So when Beijing launched its crackdown on the sect, it felt to Huang like 1989 all over again: The government was brutalizing a peaceful movement while painting its adherents as dangerous criminals. This time, he was determined to fight back. His aborted trip to China and frightening weeks in jail only left him more resolute. “My experience told me that the persecution was more severe than what we can imagine,” Huang says in accented English. “I felt I needed to do something.”

HONG KONG—A plunge in Chinese stocks erased nearly a quarter of a three-month surge, as investors feared that the central bank could soon tighten policy further.

The benchmark Shanghai Composite Index skidded 5.2%, its steepest decline in 14 months, a day after the country reported a sharper-than-expected rise in inflation. Other Asian markets also fell.

"Investors are in a rush to lock in profits as they are concerned that the central bank may launch more tightening measures over the weekend," said Wu Dazhong at Shenyin Wanguo Securities in China.

There was no official signal from Chinese government about any imminent moves.

Official data released Thursday showed China's consumer price index jumped by a more than expected 4.4% in October from a year earlier, boosting expectations for aggressive monetary tightening in coming days to battle rising inflation. China already has required banks to park more cash with the central bank. It also raised interest rates once and tightened controls on capital inflows into the country.

Other Asian markets opened weaker, but took their biggest lumps at the end of the day as European markets opened and global investors withdrew risky bets on stocks and currencies. Hong Kong's Hang Seng Index gave up 1.9% to 24222.58, Japan's Nikkei Stock Average lost 1.4% to 9724.81 and Taiwan's Taiex shed 1.4% to 8316.05.

Friday's drops were reminiscent of market gyrations in April, when the euro plunged and Greece's debt problems came to a boil. As then, investors fled riskier assets, including gold, for safe havens such as the U.S. dollar and the Japanese yen. The Australian dollar, Korean won and several other Asian currencies weakened.

"A lot of the places that were safe places to hide on bad days like are getting hit," said Mark Matthews, strategist at Macquarie Capital in Singapore.

The biggest drops outside China were in markets that have performed particularly strongly this year.

India's Sensex slid 2.1% to 20156.8, its sharpest one-day drop in nearly a month, on a slower-than-expected rise in industrial production during September. Indonesia's JSX index fell 2.1% to 3665.85, but it remains up 45% this year.

South Korea's Kospi eased 0.1% to 1913.12, supported by technology and financial shares after the benchmark skidded Thursday on selling pressure tied to the expiry of options.

Some saw Friday's drop as a natural pullback. Stocks, commodities and Asian currencies have rocketed in the past three months almost uninterrupted, spurred on by hopes the Federal Reserve's quantitative easing program would flood markets with cash. Even with today's fall, the Shanghai Composite Index is up 14.5% in the past three months. The Australian dollar is up 11% versus the greenback.

"The market has been very strong the last few months without any consolidation," said David Lai, a fund manager at Citic Securities in Hong Kong.

While some analysts said the People's Bank of China might raise interest rates by another quarter-point this year, Linus Yip, strategist at First Shanghai Securities in Hong Kong, cited speculation of a possible increase of 0.50 percentage points this year to cool inflationary expectations.

He added that the interest rate increases were unlikely to be "so damaging" to the economy or to the markets, as evidenced by the Indian markets, which recently hit a record high despite six rate increases by the Reserve Bank of India so far this year.

Chinese property developers also declined. China Vanke Co. tumbled 7.1% in Shenzhen, Poly Real Estate Group lost 7.3% in Shanghai and Shimao Property Holdings gave up 3.6% in Hong Kong.

In South Korea, the Seoul market erased most early gains, after Thursday's late-session losses. The country's Financial Supervisory Service said Friday it has started a joint investigation with the Korea Exchange to examine heavy selling of Korean stocks by Deutsche Bank on Thursday. Deutsche Bank wasn't immediately available for comment.

In Sydney, shares of Australia & New Zealand Banking Group fell 2.1% on speculation of a potential capital raising by the bank if it purchases a 57% stake in Korea Exchange Bank. ANZ is currently conducting due diligence for the stake purchase. Private-equity firm Lone Star, which owns 51% of KEB, is selling the stake in tandem with Export Import Bank of Korea, which owns 6%. KEB shares rose 0.8% in Seoul.

"With the exception of Indonesia and Korea, India had the weakest year-on-year industrial growth rate of any Asian country in September… The Reserve Bank of India has effectively signaled a pause its rate tightening cycle and today's release suggests this was a wise move," Credit Suisse economist Robert Prior-Wanderforde wrote in emailed comments.

With pathetic levels of job growth and declining consumer confidence, many investors worry that the economy is dangerously close to falling into a double dip recession. This concern over the immediate future has led many to overlook a long-term problem that is getting worse every year and could eventually stand as a significant hurdle to economic growth; much of the infrastructure in the U.S. has aged considerably, and is in desperate need of upgrades.

Although there have been recent plans for high-speed rail and road improvements, as well as continued investment from the recent stimulus bill, some believe there is still a long way to go. The United States currently has one of the worst infrastructure systems for a developed country, and needs to quickly ramp up spending in order to continue to be able to easily transport goods and people around the nation. According to the Infrastructure Report Card put out by the American Society of Civil Engineers, America’s infrastructure grade is a “D,” and we would need at least $2.2 trillion over the next five years in order to get this grade up to an acceptable level. According to a recent report, this large gap can largely be attributed to the nation’s lack of spending on the sector in favor of social programs and increased military spending; the U.S. is quickly falling behind other countries both developed and developing:

Infrastructure spending as a percentage of Gross Domestic Product (GDP), has declined by 50 percent since 1960. The United States is currently investing less on infrastructure as a percentage of GDP than Europe, China, and many emerging economies. In total, emerging economies alone are likely to spend $1.2 trillion on infrastructure in 2008. America spends only about 2 percent of GDP per year on infrastructure investment (this includes federal, state, local, and private-sector spending). By contrast, that number is about 5 percent in Europe and between 9 percent and 12 percent in China. In developed economies, the average is about 3 percent of GDP, and for developing economies it is around 6 percent. While the United States is trying to make a dent in its massive repair bill, other countries are lapping us in new investment — further shrinking the competitiveness gap between America and the rest of the world.

According to the Report Card, among the worst sectors of America’s infrastructure are drinking water, inland waterways, levees, roads, and wastewater, all of which are given a grade of “D-” by the site. If the U.S. hopes to remain competitive globally–especially against rising powers who have put a premium on infrastructure development and now have boast some of the most modern airports and rail networks in the world–an increased focus on infrastructure is a must.

Given the opaque nature of the Chinese power structure, it's difficult to know for sure if such actions were known of at the highest levels and had their approval. The PLA has had the tendency to act more like an organized crime cartel rather than a conventional military since the start of market reforms in China, if not earlier. The NorKs tend to act as cut outs for the PLA's covert actions or act in concert with the PLA generals when they seek to pad their retirement portfolios through less than accepted means.

A very insightful writer described the Chinese power structure as "5% Marxist-Leninist, 95% Sopranos".

My recommendation for a response would be for China to be given a back channel message to cease and desist or we start a tit for tat nuke and missile tech transfer to places they would not like to have it, like a small country called Taiwan.

The ballroom of the Grand Hyatt on Beijing’s East Chang An Avenue was packed. The occasion: the first-ever China International Nuclear Symposium, a gathering of China’s top nuclear players and the world’s nuclear power companies, including Westinghouse, Areva SA, and Hitachi-GE.

What brought the Chinese to the Hyatt on Nov. 24 and 25 was a hunger for the latest technology, Bloomberg Businessweek reports in its Dec. 6 issue. What brought the foreigners was money: According to Michael Kruse, consultant on nuclear systems for Arthur D. Little, the Chinese are ready to spend $511 billion to build up to 245 reactors.